Spring Budget 2024: UK government confirms introduction of the Reserved Investor Fund – albeit in restricted form

As part of the Spring Budget 2024, it was announced that a new investment fund would be introduced for professional and institutional investors. The Reserved Investor Fund (Contractual Scheme) (RIF) will be legislated for in the Spring Finance Bill 2024, with detailed rules to be set out in a statutory instrument at a later date.

The RIF has been described as a response to industry demand for a flexible, low-cost unauthorised fund vehicle. The government has stated that its intention, where reasonable to do so, is to replicate the tax rules which apply to Co-ownership Authorised Contractual Schemes (CoACS). The government's expectation is that the RIF will be particularly attractive for investment in commercial real estate.

The government consulted last year on the scope and design of the RIF (to which Osborne Clarke responded) and a summary of responses was published as part of the Budget announcements. While the concept of an unauthorised version of the CoACS is widely encouraged by the industry, there have been certain technical complexities to consider.

Restricted RIF

The consultation considered both restricted RIFs and (as an alternative) unrestricted RIFs.

Due to concerns about the interaction between the RIF and the non-resident capital gains rules discussed during the consultation process, the RIF regime will be restricted to certain scenarios. The government has confirmed that it will proceed with all three restricted RIFs considered in the consultation. These are:

• where at least 75% of the value of the RIF's assets is derived from UK property (so the RIF is "UK property rich" for the purposes of the non-resident capital gains rules); or
• where all investors in the fund are exempt from tax on gains; or
• where the fund does not directly invest in UK property, or in property-rich companies.

Anti-avoidance provisions (which are intended to be proportionate) will cover where a RIF breaches these categories, and there will also be mitigations.

The restricted RIF will also be able to invest in a wide range of asset classes beyond real estate, subject to being within one of the three restricted regimes, listed above.

Three further requirements are that the scheme is "UK-based", meets a genuine diversity of ownership ("GDO" condition or a "non-close" test), and that HMRC has been notified.

Osborne Clarke comment

Osborne Clarke has been supportive of the government's proposals for a RIF, believing that it will offer opportunities to strengthen the UK's fund offering and enhance its competitiveness in the asset management sector, particularly in the mid-market unauthorised funds space. It could offer a UK-based  alternative to certain overseas fund vehicles currently being used.

The decision to bring in a restricted form of the RIF is unsurprising given the concerns surrounding the non-resident capital gains rules identified during the consultation process, although it will restrict how and where the RIF will be used.

An unrestricted form could still be developed in the longer term but will require further detailed consideration and complex tax provisions for capital gains. We wait to see if the government has the appetite to do so.

The government has said that it intends to engage with stakeholders in due course before providing for detailed tax rules in secondary legislation.